Hillenbrand Inc. has a record backlog of large polyolefin systems projects, but demand remains soft in some key end markets, including automotive, and that has weighed heavily against Milacron, its wholly owned subsidiary.
Batesville, Ind.-based Hillenbrand reported sales of $649 million for the second fiscal quarter — up 40 percent compared to a year ago because of the addition of Milacron Holdings Corp., which it acquired for $1.9 billion in November.
Milacron sales and orders were declining at the time, however, because of industrywide headwinds ranging from a global slowdown to ongoing trade tensions. Now the COVID-19 pandemic is dealing a blow to many businesses.
Milacron's sales dropped 20 percent to $199 million in the fiscal second quarter compared to the same period of 2019 as demand softened for injection molding and extrusion equipment orders in March. The decline continued in April.
The injection molding and extrusion product lines within the Milacron segment are the most cyclical part of Hillenbrand's business, President and CEO Joe Raver told investment bankers in a May 7 conference call.
"These products are mostly sold in North America and India with a strong presence with custom molders, automotive, consumer durables and medical products," Raver said. "Orders have slowed significantly in North America and India — the two largest geographic markets for these products as both economies have been hit hard by COVID-19 and mandatory lockdown."
Hillenbrand is targeting acquisition synergies of $50 million within three years, including $20 million to $25 million for fiscal 2020. Restructuring activities led to the closure of a "small" Milacron facility near Atlanta, Chief Financial Officer Kristina Cerniglia told analysts.
Even though the Milacron segment has an order backlog of $187 million for injection molding and extrusion equipment orders, that's down 17 percent compared with the same period a year ago, while the backlog for Hillenbrand's process equipment group, which includes hot runner systems, increased 2 percent to a record $982 million.
Overall sales for the process equipment group came in at $311.1 million, which is down 5 percent compared to the prior year period, because of lower demand for screening and separating equipment.
Company officials said order rates for hot runner systems, however, improved in March and April compared to January and February, because China relaxed or lifted government shutdowns and demand increased for medical and pharmaceutical projects due to the fast-spreading respiratory illness.
Milacron offers the top-selling brand of hot runners in the Americas and Europe and is No. 2 in Asia, the company says.
Hillenbrand's other business unit, Batesville, which manufactures funeral service products, mostly caskets, was up 1 percent to $139 million for the second quarter compared to the prior year.
The company is cutting costs to improve its cash flow, Cerniglia said. Merit-based salary increases were canceled. Raver took a voluntary 30 percent reduction in salary. The board of directors waived its cash compensation increase for 2020. An undisclosed number of employees were furloughed or laid off. Travel and marketing budgets have been cut. A hiring freeze is on except for critical positions, and capital spending was reduced.
"In total we expect these cost-containment actions to result in near-term savings of approximately $25 million," Cerniglia said. "We're continuously reevaluating these actions and additional levers to manage our costs as the situation evolves."
Hillenbrand also has suspended fiscal 2020 guidance.
"We can't predict with certainty how long the disruptions from COVID-19 will last or how deep the economic impact will be," Cerniglia said.
Founded in 1906, Hillenbrand saw sales of $3 billion in fiscal year 2019 with 12,000 employees at 50 locations.